Zambia election campaign could pressure economy

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Campaigning for Zambia’s September presidential election is in full swing with the incumbent launching an expensive building project at a time when state coffers are coming under pressure from declining revenue from its main export, copper.

At least 10 aspirants have signed up to contest the September 20 vote largely seen as a two-man race between incumbent President Rupiah Banda and opposition Patriotic Front leader Michael Sata, a gruff populist critical of what he sees as the increasing influence of foreign firms over the economy.
“It is too close to call,” said political analyst Lee Habasonda of the University of Zambia, Reuters reports.

Banda has won accolades from foreign mining firms for opening the country to international investment, especially from China, and providing clear regulations on operations that have help keep the playing field level.

Banda, leader of the Movement for Multi-party Democracy, and Sata have pledged hefty spending to woo voters by building up a woefully inadequate infrastructure in the country with a $13 billion a year economy.

Banda has proposed spending 1 trillion kwacha on the upgrading of urban roads and intends more spending on other infrastructure such as schools, clinics and bridges.
“In the case of a Banda/MMD victory, we expect that the Zambian government will quite quickly come to the market with a US$500m debut Eurobond to kick start this spending push,” Citi said in a research note.

The prospects of more borrowing to finance the upgrades coincide with worries there could be less money heading into state coffers from mining taxes and exports.

Copper, which accounts for 80 percent of the southern African country’s export earnings, has dropped by about 11 percent in price in recent weeks as worries mount over a double dip global recession that could stifle demand.

A Reuters roll this week showed Zambia’s quickly growing economy is expected to slow to 6.9 percent this year from 7.1 percent in 2010 as copper prices fall and exports look set to shrink in a staggering global economy.
“Copper production in Zambia showed less aggressive growth during the first half of 2011,” said Thea Fourie, economist at IHS Global Insight.

During the financial crisis at the end of 2008 the price of copper plummeted and pushed Zambia into its first recession in about a decade.



Another worry is that a Sata victory could put pressure on the kwacha currency, with analysts seeing him imposing more restrictions on foreign capital.
“The likelihood of change of government will lead to kwacha devaluation and whenever there is certainty of the ruling party retaining power, the kwacha will appreciate marginally,” said Chibamba Kanyama, a member of the think-tank Economics Association of Zambia.